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“This is not a debate about rescuing landlords. It is about preventing avoidable deterioration in housing that remains essential to the city’s economic and social fabric.”
The system that sustains New York City’s rent stabilized housing has been badly fractured. We need to balance physical and financial soundness with affordability.
In 1974 when the major banks founded the Community Preservation Corporation (CPC), its animating principle was to work with government to build and maintain a legislative and regulatory framework capable of renewing and sustaining the city’s neighborhood housing. Lenders, government, and civic institutions alike must renew that commitment—to both protect this housing and its residents.
How broken is it?
Start with the growing financial distress in city-subsidized, rent-stabilized housing. A recent report from the New York Housing Conference (NYHC) documents how rising operating costs—unmatched by comparable rent growth—are pushing many buildings toward mortgage default, with serious implications for financing both the preservation of existing housing and the building of new housing. Some 213,000 apartments are affected.
NYHC recommends a number of sensible actions to address this, including resetting rents on vacancies affordable to households at 60 percent of the area median income (AMI), and avoiding lengthy delays in re-renting apartments. They also recommend $1 billion of new funds to protect the over $16 billion of public funds invested to build and/or renovate properties developed over the last two decades.
That is alarming. But it is only part of the story. An even larger segment of rental buildings faces serious problems—a category that NYU’s Furman Center defines as “legacy” rent stabilized buildings. These include non-subsidized buildings, built before 1974—over half built before World War II—that contain six or more units, with 90 percent or more of their apartments rent stabilized. This high percentage means these buildings have little room to increase rents outside of the strictures of the 2019 Housing Stability and Tenant Protection Act (HSTPA) requirements. These buildings are largely privately owned, and are predominantly located in the city’s low and moderate-income communities.
They are under pressures comparable to subsidized buildings, but with fewer tools available to prevent decline. These buildings anchor low-income and working-class neighborhoods across the Bronx, Queens, Brooklyn and northern Manhattan. If they falter, the consequences will be measured not just in balance sheets, but in deteriorating housing conditions for hundreds of thousands of New Yorkers.
The scale is significant. The Furman Center estimates that about 456,000 pre-1974, non-subsidized apartments exist citywide in these legacy buildings—nearly two and a half times the number of the city’s public housing units. Using data from the 2023 Housing Vacancy Survey, about 200,000 of these apartments are located in the Bronx alone, where median household income among tenants is about $42,500, less than 35 percent of the AMI. Citywide, the median income of rent-stabilized tenants is about $60,000.
These are not high-rent buildings. Median rents are about $1,340 per month, modestly higher than $1,235 per month rents in subsidized properties, but hardly flush with cash. And unlike subsidized housing, these buildings typically pay full real estate taxes, which consume about one-fifth of their rental income. Subsidized properties often receive long-term tax abatements and exemptions from increases in building assessments for up to 40 years which substantially reduce or eliminate that burden. Once taxes are accounted for, the rental difference between the subsidized and legacy buildings largely disappears.
CPC has had years of experience with owners with small property holdings in these neighborhoods. Many have limited capital resources and/or experience in obtaining help from government programs, and little ability to absorb prolonged shocks.
And the shocks have been cumulative.
Over the past decade, safety-net programs such as J-51 tax abatements have diminished and low-interest rehabilitation loans have been underfunded. The 2019 HSTPA sharply restricted revenue growth, eliminating vacancy increases and constraining recovery of funds for both individual and building-wide capital investments. During the pandemic, tenant nonpayment rose. Insurance premiums, fuel, water and sewer, and labor costs climbed.
While most subsidized housing often carries long-term fixed-rate public and private debt, legacy buildings often rely on five- to seven-year private loans. During the last several years, interest rates almost doubled, from 3 to 6 percent. When those loans reset at today’s rates, the result can be unsustainable.
Some will argue that owners and lenders assumed the risks of placing too much debt on the building and should bear the consequences. Certainly, not every refinancing decision was prudent, nor could they anticipate the changes enacted in the 2019 legislation. But housing policy cannot be driven solely by retrospective judgment. The question is not whether to shield balance sheets from losses; it is whether to protect tenants and preserve housing stability.
These buildings house more than 900,000 New Yorkers. Allowing widespread deterioration or foreclosure would destabilize neighborhoods and ultimately cost more in emergency interventions than proactive stabilization would today.
New York has faced similar problems before. During the early 1990 recession, thousands of moderate-income cooperatives faced default on their underlying mortgages. The state responded by authorizing its mortgage insurance agency, SONYMA, to insure the restructured loans, most tied to rehabilitation plans supported by real estate tax relief through the city’s J-51 program. The Community Preservation Corporation helped facilitate restructurings, and once properties stabilized, long-term financing from the state pension funds followed.
The principle applies today. A comparable framework could restructure unsustainable debt, and pair it with targeted J-51 tax relief and low-interest city loans for needed work. SONYMA can encourage banks to write down loans to sustainable amounts with a suitable fixed-rate term (10-15 years) by providing insurance for the reduced mortgage. In many cases, these loans have already been marked down internally. These insured loans could be held by the bank, or sold into the secondary market. A structured program would provide clarity and avoid years of litigation and piecemeal defaults.
The J-51 tax program must also be part of the solution. Restoring as-of-right J-51 real estate tax benefits, including the once available enhancements in targeted affordable neighborhoods for work defined as “moderate rehabilitation”—replacing or repairing at least two major building-wide systems—can both reduce operating pressures and improve living conditions. Enhancements included deeper tax cuts, and long-term exemptions from increased building assessments due to improvements.
These actions, combined with long-term fixed rate debt, are a well-tested formula to keep rent stabilized properties physically and financially sound, while remaining affordable. The current workout scenarios by CPC of defaulted Signature Bank loans includes this on its menu of solutions.
Such a program may be attractive to the dozen banks that have large portfolios of troubled mortgages on legacy buildings. Many of these—JPM Chase, Wells Fargo—have experience working with city and state programs. While obtaining lender discounts is never easy, it can be facilitated by simplified subsidy processing, free of additional regulatory requirements.
However, long-term fixed rate financing, whether it be 30-year mortgages from the city pension funds, or shorter term (10-15 year) fixed-rate bank debt as proposed above, must be based on confidence that inflationary operating costs and public mandates can be fairly balanced with a combination of rent increases and subsidies to sustain this housing over time.
City pension funds play a critical role. Their investments signal confidence that this balance can be sustained. They also financed smaller buildings that often struggle to secure long-term capital and, unlike some national lenders, routinely underwrite loans that incorporate the value of local public subsidies.
None of these steps absolves irresponsible owners. Approval processes can screen participants with efforts to replace them with seasoned owners. But broad-based distress demands systemic tools.
The alternative is familiar. Deferred maintenance accumulates. Services are cut. Violations rise. Buildings slip into foreclosure and/or receivership. Tenants endure declining conditions while government eventually intervenes at higher cost.
Given the magnitude of the problem, remediation will require more resources—expanded mortgage insurance and additional capital subsidies. Current debate has focused on raising taxes on the rich, and/or on real estate. A third option is to lower costs by spending housing funds more effectively. One reads of eye-popping and ever escalating prices for building and renovating affordable housing. The mayor’s push to streamline processes could cut years from development timelines—with meaningful reduction of costs.
What other steps could be taken? First, expand SONYMA’s insurance capacity. It receives a statutory 0.25 percent surcharge on the state’s mortgage recording tax to fund loss reserves, which now exceed $2.5 billion, and operates with a 5:1 insurance-to-reserve ratio (with additional offsets for defaults). Annual surcharge collections fluctuate with real estate activity—$210 million in 2022 versus $107 million in 2024.
Excess funds—amounts not needed to meet reserve requirements or other statutory uses—could be redeployed by the state. For example, setting aside $50 million as an incremental reserve could test whether banks would accept losses on defaulting loans in exchange for SONYMA’s standard 75 percent top-loss insurance on the remaining balance. The math is straightforward: $50 million times five, divided by 0.75 equals roughly $333 million in insurable discounted mortgages.
Second, obtaining SONYMA 75 percent insurance requires building-wide repairs equal to a minimum of 20 percent of the insured mortgage or, in the above example, 20 percent of $333 million: $67 million. Low interest city subordinate loans with some added owner equity can fill this gap with disciplined work scoping.
Current practice relies on the Integrated Physical Needs Assessment (IPNA) protocols to define renovation scopes in occupied buildings, often front-loading comprehensive work plans to avoid future financing constraints. The result many times is too much subsidy for too few buildings. A more judicious approach—prioritizing core systems while preserving cash flow for secondary needs, broadly consistent with J-51 moderate rehabilitation standards—can stretch scarce subsidy dollars across far more housing.
The Community Preservation Corporation has demonstrated this model, renovating more than 60,000 units in primarily legacy buildings, including the $270 million rehabilitation of 12,271 apartments across the 171-building Parkchester complex in the Bronx, enabled in part by a timely acquisition at a distressed price.
This combination of debt restructuring and public subsidy can broaden city preservation efforts, and supercharge SONYMA’s core mission to incentivize investment in underserved communities. For residents, a better, more secure building with some rent increases for non-exempt tenants as currently prescribed by HSTPA. For lenders, a troubled loan replaced by a smaller but secure loan. For owners, restored economics, but a tax liability on the mortgage discount.
New York rightly emphasizes building new affordable housing. But preservation remains the most cost-effective housing strategy. Losing nearly half a million rent-stabilized apartments serving working-class tenants would undermine decades of progress.
This is not a debate about rescuing landlords. It is about preventing avoidable deterioration in housing that remains essential to the city’s economic and social fabric.
The window to act is narrowing as rent increases are held below rising operating costs. A pragmatic package as described above can stabilize this housing stock before crisis becomes collapse. If policymakers move decisively now, they can protect tenants, neighborhoods and the long-term health of the city’s rent-stabilized system.
Michael Lappin is the former CEO of the Community Preservation Corporation (1980-2011). During his tenure, CPC financed and/or developed the preservation and building of over 92,000 affordable apartments in New York City. Currently he heads Lappin Associates, providing development and advisory services for affordable housing.